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Stale Information, Shocks and Volatility

Reint Gropp

Goethe University Frankfurt; Centre for European Economic Research (ZEW); Goethe University Frankfurt - Department of Finance

Arjan Kadareja

European Central Bank (ECB)

February, 15 2009

We propose a new approach to measuring the effect of unobservable private information on volatility. Using high-frequency intraday data, we estimate the volatility effect of a well identified shock on the volatility of the stock returns of large European banks as a function of the quality of available public information about the banks. We hypothesise that, as the publicly available information becomes stale, volatility effects and its persistence should increase, as the private information (or beliefs) of investors becomes more important. We find strong support for this idea in the data, also for alternative measures of dispersion of beliefs among investors, such as bid-ask spreads, trading volume and earnings forecasts. We argue that the results have implications for debate surrounding the opacity of banks and transparency requirements imposed on banks by regulators.

Number of Pages in PDF File: 45

Keywords: Banks, realised volatility, public information, opacity

JEL Classification: G21, G14

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Date posted: February 17, 2009  

Suggested Citation

Gropp, Reint and Kadareja, Arjan, Stale Information, Shocks and Volatility (February, 15 2009). Available at SSRN: http://ssrn.com/abstract=1343729 or http://dx.doi.org/10.2139/ssrn.1343729

Contact Information

Reint Gropp (Contact Author)
Goethe University Frankfurt ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Goethe University Frankfurt - Department of Finance ( email )
House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Arjan Kadareja
European Central Bank (ECB) ( email )
Sonnemannstrasse 22
Frankfurt am Main, 60314
Feedback to SSRN

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